Chapter 4 Accounting Sample Problems

(True or False): The primary advantage of the multiple-step format lies in the simplicity of presentation and the absence of any implication that one type of revenue or expense item has priority over another.

False

Which of the following is not a selling expense? a. Advertising expense b. Accounting salaries expense c. Freight-out d. Store supplies consumed

b. Accounting salaries expense

(True or False): A company that reports a discontinued operation item must report per share amounts for this item.

True

(True or False): Gross profit and income from operations are reported on a multiple-step but not a single-step income statement.

True

(True or False): Noncontrolling interest is the portion of equity (net assets) interest in a subsidiary not attributable to the parent company.

True

Perry Corp. reports operating expenses in two categories: (1) selling and (2) general and administrative. The adjusted trial balance at December 31, 2017, included the following expense accounts: Accounting and legal fees $420,000 Advertising 360,000 Freight-out 225,000 Interest 180,000 Loss on sale of long-term investments 90,000 Officers' salaries 540,000 Rent for office space 540,000 Sales salaries and commissions 405,000 One-half of the rented premises is occupied by the sales department. How much of the expenses listed above should be included in Perry's general and administrative expenses for 2017? a. $1,230,000. b. $1,320,000. c. $1,410,000. d. $1,500,000.

a. $1,230,000. (420,000+540,000+270,000) (Accounting and legal fees + Officers' supplier + 1/2 rent for office space)

A change in accounting principle requires that the cumulative effect of the change for prior periods be shown as an adjustment to: a. beginning retained earnings of the earliest period presented. b. net income of the period in which the change occurred. c. comprehensive income for the earliest period presented. d. stockholders' equity of the period in which the change occurred.

a. beginning retained earnings of the earliest period presented.

In calculating earnings per share, companies deduct preferred dividends from net income if: a. they are noncumulative though not declared. b. the dividends are declared. c. they are convertible preferred shares. d. they are callable preferred shares.

b. the dividends are declared

In 2017, Linz Corporation reported a discontinued operations loss of $1,200,000, net of tax. It declared and paid preferred stock dividends of $120,000 and common stock dividends of $360,000. During 2017, Linz had a weighted average of 500,000 common shares outstanding. As a result of the discontinued operations loss, net of tax, the earnings per share would decrease by a. $1.44 b. $1.68 c. $2.16 d. $2.40

c. $2.16 (1,200,000 - 120,000/500,000)

During 2017, Lopez Corporation disposed of Pine Division, a major component of its business. Lopez realized a gain of $3,000,000, net of taxes, on the sale of Pine's assets. Pine's operating losses, net of taxes, were $3,500,000 in 2017. How should these facts be reported in Lopez's income statement for 2017? Total Amount to be Included in Income from Results of Continuing Operations Discontinued Operations a. $3,500,000 loss (CO) $3,000,000 gain (DO) b. 500,000 loss (CO) 0 (DO) c. 0 (CO) 500,000 loss. (DO) d. 3,000,000 gain (CO) 3,500,000 loss (DO)

c. 0 (CO) 500,000 loss. (DO) (3,000,000-3,500,000 = - 500,000)

Where must earnings per share be disclosed in the financial statements to satisfy generally accepted accounting principles? a. On the face of the statement of retained earnings (or, statement of stockholders' equity.) b. In the footnotes to the financial statements. c. On the face of the income statement. d. On the face of the balance sheet.

c. On the face of the income statement.

The major elements of the income statement are a. revenue, cost of goods sold, selling expenses, and general expense. b. operating section, nonoperating section, discontinued operations, and cumulative effect. c. revenues, expenses, gains, and losses. d. revenues, irregular items, and general expenses.

c. revenues, expenses, gains, and losses.

The income statement reveals a. resources and equities of a firm at a point in time. b. resources and equities of a firm for a period of time. c. net earnings (net income) of a firm at a point in time. d. net earnings (net income) of a firm for a period of time.

d. net earnings (net income) of a firm for a period of time